‘Made in China’ crash doomed Indian equities, rupee

A slowdown in the Chinese markets, which led to a global markets’ crash, coupled with rupee volatility and the risk of a US rate hike knocked-out the Indian equity markets in the week just-ended.Investors were spooked by the bearish outlook on Chinese economy, which cascaded into a global crash – plunging the barometer 30-scrip sensitive index (Sensex) of the S&P Bombay Stock Exchange (BSE) by 974 points or 3.55 percent.
The Sensex ended the week at 26,392.38 points from its 27,366.07 points points closing on August 21.

The wider 50-scrip Nifty of the National Stock Exchange (NSE) declined by 298 points or 3.59 percent at 8,001.95 points from 8,299.95 points on August 21.

The knock-out blow to the Indian barometer index came on Monday, when the S&P BSE Sensex lost as much as 1,624.51 points, or 5.94 percent — which was the steepest fall in terms of points.

The fall on Monday surpassed the previous highest closing loss of 1,408.35 points on Jan 21, 2008 known as the “Manic Monday” and took the title of “Black Monday.”

The CNX Nifty of the NSE closed 491 points, or 5.92 percent, down at 7,809 points on Monday. In both bourses as much as Rs.7 lakh crore ($100 billion) was wiped out in terms of marketcap.

“The chaotic week that has gone by has given investors an opportunity to weigh the magnitude of possible risk posed by China’s slow down and the measures taken by it prop up economy,” Anand James, co-head, technical research, Geojit BNP Paribas, told IANS.

The massive implosion in the Chinese markets which has by some estimates eroded 40-45 percent of the entire stock value coupled with yuan devaluation and lower factory out has spooked the world markets.

The downward trend was also supported by a depreciating rupee, falling commodity prices and the fears of another recession hitting the global economy with slow down in the Chinese growth.

“Continued weakness in the commodity prices and rupee depreciation created worries for the investors,” cited Gaurav Jain, director with Hem Securities to IANS.

During the week, the Indian rupee fell to its lowest in two years at 66.74 to a dollar. It closed the week at 66.15 to a dollar on Friday, down 10 paise from its previous close of 66.05.

Recovery in global crude oil prices, falling yuan coupled with outflow of funds from Indian equity and bonds markets has dented rupee value.

The negative trajectory was reversed with a healthy rally in the last two trading sessions. The rally was supported by strong US GDP data, which was better-than-expected, growth in Chinese exchanges and attractive valuations.

“An interest rate cut by the PBOC (People’s Bank of China), comments from the US Fed indicating that a rate hike in September is unlikely and strong macro data from the US lifted sentiment towards the end of the week,” Rahul Dholam, senior analyst with Angel Broking pointed-out.

The PBOC also injected $9.39 billion into interbank money market and the Chinese securities regulator said that it will tighten profit margin controls to curb speculations.

The Sensex gained around 677 points during its rally on Thursday and Friday.

The rally gains were in a way spurred by the massive fall on Monday. As the crash had sharply reduced prices and gave an opportunity for value buying by the domestic investors, said Devendra Nevgi, chief executive of ZyFin Advisors.

“The market correction has sharply reduced prices and led to value buying at lower levels. This supported the ongoing positive bias in the market,” Nevgi elaborated to IANS.

“The Indian economy’s fundamentals are very strong, be it growth, be it lower current account deficit, slowdown in inflation, pickup in consumer sentiment and hopes of a rate cut. These factors will contain the fall and hasten recovery in India faster than other markets,” Nevgi told IANS. (IANS)